Despite a hiatus in activity over the past few years, M&A in private Equity has made a strong comeback, doing so with renewed vigour. With that in mind, we spoke with Elias Mazzawi and Fiona Kidd, two highly experienced interim post-transaction practitioners, to get their thoughts on what’s changing, and what drives successful integrations and post-transaction value creation in a renewed mid-market private equity M&A environment. To create a clear breakdown, we created 6 key learnings based on Elias and Fiona’s insights.
6 key learnings
1. Deals will vary more – the post-merger programme needs to increase in adaptability.
Due to evolving market conditions, sector-specific strategies and diverse value creation approaches, we are seeing a larger variation in deals. A roll-up is different from a merger of equals which is different again from a take-private. Likewise, a first-time in private equity, founder-led transaction is different from a transaction between funds. Therefore, the Post-Merger Integration (PMI) programme needs to reflect this.
Bigger deals typically require a more rigorous and interconnected integration programme, while smaller deals tend to focus on the revenue side of value creation. In a merger of equals, there are often two of everything to be aligned, integrated and slimmed down, whereas a roll-up focuses more on migrating the acquired companies to the parent company norms, aiming to make the whole greater than the sum of its parts. The programmes, skills and capabilities are very different – and so is the role, and background, of the interim.
2. Quick wins will be evermore essential.
With it taking years to deliver on long-term strategic synergies, quick wins are essential in providing tangible results to secure buy-in, boost stakeholder confidence and create a positive foundation for future success. Any good PMI programme needs to factor in quick wins to build confidence in the early business case and create a positive feedback loop. In times of change, stakeholders are looking for evidence that it’s working out. Rapid positive outcomes build momentum and encourage success to build on success. It is the responsibility of the integration leader to set this up.
3. Governance remains key.
Where unity or decisiveness is lacking in decision making the integration will suffer as a result, leading to missed opportunities for synergies. Therefore, getting governance right is key. For larger transactions, this can be a sequenced hierarchy of steering and executive committees; for smaller or bolt-on transactions this can be as straightforward as ‘addressing the elephant in the room’ head-on. The important thing is that the integration leader is clear on identifying the key decisions that need to be made and establishes a pragmatic framework for that to happen.
4. Revenue impact becomes increasingly important.
With a reduction in M&A possibilities over the past few years, combined with demand-side challenges, many PE-backed businesses have already streamlined the cost side of their profit and loss, shifting their focus towards M&A value propositions based on revenue generation. The integration manager will need to be increasingly skilled in facilitating whole-greater-than-the-sum-of-the-parts revenue strategies, integrating propositions and revenue engines across newly combined entities. There is even the potential to see an emergence of hybrid integration leaders and a transitional CCO model.
5. Culture and alignment will remain perennial topics.
It is no surprise when putting two organisations together, the chances are that their methods will differ significantly and may not align or overlap. The odds of differentiation increases when, for example, it’s a founder-led business added as a bolt-on to a larger private equity-backed business or a buy-and-build strategy. Working out how to operate as a unified team that brings in the best of both organisations is key. The integration leader needs to open the discussions and processes that drive alignment, and create formal structures and opportunities to connect, while also being a capable ‘internal broker’. They must recognise opportunities and pinch points while knowing where a ‘coffee conversation’ will make a difference.
6. AI will start to play its part.
Though it’s not yet clear what that part will be, AI will undoubtedly change the game in some way. Research by Bain & Company highlights that generative AI use in M&A is currently low at 16%, but it is expected to rapidly increase to 80% over the next three years. This expected growth in AI is also emphasised in our report, with 60% of PE-backed organisations expecting to run AI transformation programmes over the next five years. Therefore, integrations will increasingly involve introducing and harmonising AI into business models. Therefore, integration leaders will need to have some proficiency in how that works. Additionally, integration programmes themselves will start to become increasingly AI-driven meaning AI may well start to take the strain on programme management disciplines, shifting the workload of the integration leader further from programme management activity.